Strange times we live in because this is a question I get a lot these days. The answer I usually give is “It depends”. I know that sounds like a cop out but the reasons for every foreclosure, short sale, or deed in lieu of foreclosure will be different. Plus, pretty much as soon as I publish this posting, the rules will most likely change. Sort of a moving target.
A sluggish housing market has caused millions of home owners to lose their home to foreclosure, short sale, or deed in lieu of foreclosure. But once these former home owners get a better handle on their credit, how long do they have to sit on the sidelines until they can secure future financing to buy a home again?
As an article in The New York Times notes “there are plenty of asterisks and conditions” when it comes to how long a borrower must wait after a “significant derogatory event,” like a foreclosure or short sale.
In general, however, The New York Times notes that the longest wait to buy again will come if there is a foreclosure in the former home owner’s past.
Fannie Mae and Freddie Mac have a three-year waiting period following a foreclosure, and a two-year wait following a short sale, deed in lieu, or discharge or dismissal of bankruptcy. However, if borrowers can justify that the circumstance for the foreclosure or bankruptcy occurred because of an illness or job loss — or other “extenuating circumstance” — that may help reduce their wait. But with no such extenuating circumstances, these former home owners may have to wait longer, even up to seven years following a foreclosure or four years after bankruptcy, the article notes.
For loans insured by the Federal Housing Administration, borrowers with perfect credit afterwards also will, in general, have to wait three years after a foreclosure and two years after a bankruptcy is discharged, The New York Times notes.
Following a short sale, borrowers will have to wait three years to secure another FHA loan — however, there are plenty of exceptions. Borrowers will have to wait three years if they were in default at the time of the short sale and had no extenuating circumstances. However, if the borrowers were on time with all their payments a year prior to the short sale, they may have no wait at all and might even qualify for an FHA loan immediately.
“The key is to avoid the foreclosure,” Andrew Wilson, a spokesman for Fannie Mae, told The New York Times. “That is what will help you be eligible for the shorter period.”